Expert case by Emily

FastFood Chain under COVID - 1st round BCG type

< 100
Times solved
Beginner
Difficulty
Rating

Problem Definition

Our client (FastFood Co) is a fast food company that has > 20 restaurants in the city. Since COVID-19, the business has encountered significant challenges, with operating income drops to negative.

The client wants us to help them turn around the business. How would you help them?

Comments

This case is similar to a BCG round 1 case, but catered more for beginners to get familiar with case interview.

This case is a relatively straightforward profitability case. The candidate should be able to explore both revenue and cost fronts. Ideally this case should be solved in under 20 minutes.

Short Solution

Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section

Paragraphs highlighted in blue can be verbally communicated to the interviewee

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case

The candidate's initial structure could be a typical profitability framework which should cover both revenue and cost. Under revenue, the candidate should further breakdown to average price, quantity (i.e., # of transactions), and sales mix. Some candidates might miss out on the mix, in which situation the interviewer can push the candidate to think what he/she has missed out. There are multiple possible ways to cut the mix, by channel, store, etc., as long as the candidate can propose one reasonable way. On the cost front, the candidate should be able to list down a few common cost items including COGS (mainly raw materials), rent, SG&A etc.

The candidate might ask a few clarifying questions before putting down a structure. When asked, the following can be provided to the candidate.
  • Products: the main product is fried chicken, with sides and drinks

  • Stores: the client has > 20 stores in the city. These stores are in similar type of locations and are with similar sizes (in terms of area)

  • Channel: the client sells both offline in the physical store and online via owned channel and 3rd party delivery platforms

After the candidate puts down the structure and starts asking about sales performance, share exhibit 1 with the candidate and ask him/her to discuss the key insights.

A good candidate should be able to identify a few key insights:

  • Sales grew consistently before COVID but experienced a significant drop i.e., ~30% due to COVID

  • The total number of stores was growing but didn’t change from 2019 to 2020, therefore sales drop is not due to expansion issue

  • Gross margin % remains stable, which implies COGS (as % of sales) has not changed much and is not an issue

  • Net profit is a lot worse in 2020. This is driven by the combination of (1) significant sales drop, and (2) not enough reduction on costs below COGS.

The candidate should then further break down sales to its components. When asked about price, can share with the candidate that the average price or transaction size (in $) has come down by about 5%. Besides, average price is pretty much the same across different stores and channels.

The candidate should realize that a 5% drop in price is not enough to result in a 30% drop in sales, therefore the main issue lies with transaction drop. The candidate should ask further on breakdown of the transaction, ideally proposing a few potential ways to cut the data (e.g., by channel, or by store).

At this point, share exhibit 2 with the candidate and ask for his/her observations.

The candidate should be able to observe that (1) compared to competition, the client is lagging behind in delivery sales, (2) there seems to be a trend that the higher the delivery sales %, the better the sales. This shouldn’t be of surprise, because due to COVID, more consumers switch from dine-in to delivery. Therefore, the client needs to catch up on increasing their delivery sales.

When the candidate has discussed his/her findings on exhibit 2 and uncovered the potential improvement needed for delivery sales, ask the candidate to brainstorm what can be done to increase the share of delivery sales.

This part of the case is qualitative with the aim to test whether the candidate can think openly. There is no definite answer, but potential ideas could include:

  • Internally within FastFood Co

    • Review current delivery channel sales & marketing and operations to identify improvement areas

    • Leverage CRM data if they already have some customer data, eg., loyalty program

    • Leverage digital channels e.g. WhatsApp, Instagram to reach out and engage with customers and provide additional order channels

  • Externally with delivery platform

    • Evaluate and explore the opportunity to join delivery platform if not yet done so

    • If they are already on delivery platform, review the performance with platform and improve marketing efficiency (visibility, awareness, conversion, retention etc.) on platform to increase order

After the candidate finishes analysis on sales, he/she should remember to move to the cost part of the equation. Remind the candidate if he/she forgets to do so.

Share exhibit 3 with the candidate and ask for his/her insights.

When asked, the following information can be shared with the candidate
  • Assume competitors are similar in scale with client

  • Depreciation is predefined from preivous years investment and hard to change

The candidate should be able to spot that the client has higher costs on two particular items, compared to benchmark, namely rent and depreciation. Depreciation is hard to change, but there should be levers to improve on rent cost.

Ask the candidate what the client could potentially do to reduce rent costs. Potential answers include re-negotiating with the landlord for a special discount, exploring closure/consolidation of certain uneconomical stores, switching to cloud kitchen for some locations to cater only for delivery etc.

Once the cost part of the case is sufficiently discussed, ask the candidate to summarize his/her findings and make recommendations to the client.


The conclusion from the candidate should cover both sales improvement and cost improvement. On sales, FastFood Co needs to increase the # of transactions by increasing their delivery sales. They should review both their own delivery channel (e.g., via CRM, owned digital media) and their performance on delivery platforms to identify improvement areas. On costs, rationalizing rent cost would be the main lever. FastFood needs to explore options e.g. renegotiation, rationalizing stores, adjusting store format etc. The next step for FastFood would be to quantify these potential levers, assess which ones are more material and start taking action accordingly.

Exhibits

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< 100
Times solved
Beginner
Difficulty
Do you have questions on this case? Ask our community!

Exhibits